Public Bill Committee

[Sir Nicholas Winterton in the Chair]

(Except clauses 3, 5, 6, 15, 21, 49, 90 and 117 and new clauses amending section 74 of the Finance Act 2003) - Schedule 36

Information and Inspection Powers

Amendment proposed [this day]: No. 173, in schedule 36, page 357, line 39, leave out from first ‘notice’ to end of line 40.—[Mr. Breed.]

Question again proposed, That the amendment be made.

Nicholas Winterton: I remind the Committee that with this we are taking the following amendments: Government amendment No. 224
No. 291, in schedule 36, page 358, line 30, at end insert—
‘Provided that this condition shall not be met one year after evidence of facts, sufficient in the reasonable opinion of the Commissioners to justify the making of the assessment or the withdrawal of the relief, have come to their knowledge.’
No. 255, in schedule 36, page 358, line 40, leave out ‘6’ and insert ‘4’.
No. 256, in schedule 36, page 358, line 41, at end insert—
‘20A An information notice given for the purpose of checking the tax position of a company that has ceased to exist may not be given more than 6 years after the company ceased to exist.’
No. 258, in schedule 36, page 359, line 6, at end insert ‘or
(b) such a claim could have been maintained if the information or document had been obtained in the course of correspondence between a lawyer and a client’.
I welcome hon. members back to the Committee. It is still a little warm, and I am happy that some members have taken off their jackets to ensure that they remain fresh and competent for the debates ahead. We were on amendment No. 173 when we adjourned at 1 o’clock. The hon. Member for South-West Hertfordshire was on his feet and I ask him to resume the excellent speech that he was making.

David Gauke: I am very grateful, Sir Nicholas. No doubt you said it was excellent, because at that point I had barely risen. That was probably the strongest part of the speech.

Jane Kennedy: The hon. Gentleman’s speech was so excellent that it has moved me to say that I am minded to accept amendment No. 255, which aligns the treatment of the tax affairs of the deceased person with other arrangements, reducing the six years to four years, and there is no good reason not to do so. In the context of the debate on powers, it is better—if my hon. Friends will allow me to demonstrate my New Labour credentials and just how inclusive I am—to take a conservative with a small “c” approach to the application of powers. If he is inclined to press the amendment further, we would certainly support it.

David Gauke: I am very grateful to the Financial Secretary. I do not know whether we could break for another meal, as perhaps some of my other amendments would be accepted. The Financial Secretary said informally that she would look at the proposal over the lunch break, and I am very grateful for her acceptance of the amendment. I certainly will seek to move the amendment formally at the appropriate time.
In the atmosphere of convivial and good natured deliberations, I will not press the for a Division, but nevertheless I wish to highlight the issue of privilege. The Financial Secretary said she was uncomfortable—perhaps that is putting it too strongly: she recognised the strength of argument that the arrangements replicated in the schedule with regard to privilege create one or two distortions. She highlighted the circumstances of accountancy firms with a legal arm, which enables them to provide advice, whereas smaller accountancy firms are not able to do so. There is also the wider issue of accountancy firms in general compared with law firms. We have set out the accountancy profession’s concerns, which the Financial Secretary has acknowledged and, to some extent, she has accepted that the current situation is unsatisfactory.
The Financial Secretary said before lunch that the Ministry of Justice was keen to include the provisions on legal professional privilege. There was a time when all the other Departments jumped to the call of the Treasury, so perhaps this is joined-up government—we shall see. However, the problem remains. We are not going to press for a Division, but I hope that the Government will look again at the issue of legal professional privilege. I see no particularly strong reason why the provision should not be extended to tax advisers more generally. On that note, may I say how grateful we are to the Financial Secretary for agreeing to accept amendment No. 255?

Colin Breed: I am happy to beg to ask leave to withdraw the amendment. May I add that the acceptance of amendment No. 255 shows some maturity on the part of the Government as it is a common-sense measure?

Amendment, by leave, withdrawn.

Amendment made: No. 224, in schedule 36, page 358, line 10, at end insert ‘in relation to the chargeable period’.—[Jane Kennedy.]

Nicholas Winterton: Because of the Government’s good sense and graciousness, I ask the Opposition spokesman to move amendment No. 255 formally.

Amendment made: No. 255, in schedule 36, page 358, line 40, leave out ‘6’ and insert ‘4’.—[Mr. Gauke.]

Colin Breed: I beg to move amendment No. 174, in schedule 36, page 360, line 28, leave out sub-paragraphs (2) and (3).

Nicholas Winterton: With this it will be convenient to discuss the following amendments: No. 259, in schedule 36, page 360, line 28, leave out sub-paragraph (2).
No. 175, in schedule 36, page 360, line 35, leave out from second ‘notice’ to end of line 37.
No. 176, in schedule 36, page 360, line 37, at end insert—
‘(1A) A taxpayer to whom a third party notice relates may also appeal to the First-tier Tribunal against the notice or any requirement of the notice.’.
No. 177, in schedule 36, page 360, line 38, leave out sub-paragraphs (2) and (3).
No. 261, in schedule 36, page 361, line 13, leave out from first ‘the’ to end of line 14 and insert ‘First-tier Tribunal’.
No. 262, in schedule 36, page 361, line 25, leave out from ‘Tribunal’ to end of line 28 and insert
‘(such period to be at least 30 days starting with the day after the notification of the decision to the person to whom the information notice was given)’.
No. 292, in schedule 36, page 362, line 6, after ‘records’, insert ‘for VAT purposes’.

Colin Breed: In tabling amendments Nos. 174 to 177, my hon. Friends and I have sought to strengthen various rights of appeal. The right of appeal is paramount to much of this legislation, and taxpayers and third parties will have the opportunity to challenge HMRC decisions, which is an important aspect of the Bill.
Amendment No. 174 relates to part 5 of schedule 36, which deals with appeals against information notices. Paragraph 27 concerns the right of appeal, and amendment No. 174 would delete the unnecessary sub-paragraphs (2) and (3), which contain exceptions to the right of appeal against a notice. Sub-paragraph (2) prevents an appeal against a requirement to produce documents that form part of “the taxpayer’s statutory records”. We seek clarification on which documents are included in that provision. Such measures are often left deliberately rather loose, which makes it difficult for anyone to ensure that they retain and maintain the right records so that they can be produced at a future date. Are bank statements, mortgage statements and utility bills included in the so-called statutory documents in sub-paragraph (2), which appears to negate virtually any leave to appeal provided in sub-paragraph (1). Given that “statutory records” could include just about anything, there are virtually no grounds for appeal, which makes paragraphs 27 and 28 worryingly otiose.
Clarification of the measures would benefit and help taxpayers, as they will be asked to produce documents and to assist the authorities, and they need to know what they might be asked to provide. There should not be sub-paragraphs in the Bill that undermine basic right-of-appeal legislation. Sub-paragraph (3) would prevent an appeal if the first-tier tribunal approved the notice, but we do not see why the taxpayer should not be provided with a right to appeal in those circumstances. Will the Minister explain the thinking behind the measure? We are not alone in expressing concern . Other hon. Members may know that the Institute of Chartered Accountants, the Chartered Institute of Taxation and PricewaterhouseCoopers are concerned about the lack of leave to appeal generally for the taxpayer in schedule 36. Although part 5 allows some appeals, that is only against a notice, and it would not allow the taxpayer to prevent the inspection of premises and documents in advance. There is no provision in the Bill to suspend an inspection until the appeal has been decided. Under paragraph 30, application for an appeal should be made within 30 days, but given that inspection will not even require notice, there should be a right of appeal against all HMRC decisions and actions.
Amendment No. 175 would strengthen the third-party right of appeal, and delete the caveat that, under that right, an appeal can be made only against a third-party notice if it
“would be unduly onerous to comply”.
Amendment No. 176 would insert into paragraph 28 a new sub-paragraph (1A) on the right to appeal against the third-party notice, which would allow an appeal by
“A taxpayer to whom a third party notice relates...against the notice or any requirement of the notice”.
We have had lengthy debates about the way in which notices are issued, and the amendment would strengthen the third-party right of appeal.
Amendment No. 177 does exactly the same thing as amendment No. 174, but in respect of the appeal against a third-party notice. There are concerns that the first-tier tribunal may be persuaded to approve a notice requiring a third party to provide documents, and that the taxpayer to whom those documents relate would have no idea that that was happening. It can be argued that these are civil powers and therefore demand an openness that is not apparent in the schedule. The amendments in this group provide some important safeguards in respect of appeals, and strengthen the rights of appeal, which are an important aspect of any taxation legislation. I hope that the Minister can persuade us that these probing but important amendments are unnecessary, although we may have to think otherwise if she cannot do so.

David Gauke: When discussing schedule 36, we are trying to balance, as always in such circumstances, the rights of individual taxpayers and the efficacy of the system to enable HMRC to pursue taxpayers who owe money. A key element in getting the balance right is ensuring that we have the right appeals process in place and that an appeals mechanism applies where it is needed. The group of amendments that we are discussing relates to that objective.
The hon. Member for South-East Cornwall set out the main issues, and there is no need for me to repeat everything that he said. He made an important point relating to paragraph 27(2), which proposes that the right of appeal to the first-tier tribunal should
“not apply to a requirement in a taxpayer notice to provide any information, or produce any document, that forms part of the taxpayer’s statutory records.”
The point about statutory records is important. I should be grateful if the Minister gave the Committee some detail on, if not a definition of, “statutory records”, because that can be interpreted broadly.
I have spoken to experts in this field who argue that, in particular circumstances, a person’s diary could constitute a statutory record, depending on the information that it contained. We are not necessarily talking about a narrow definition, but we will listen carefully to what the Minister says on that point. We are interested in the reason why notices seeking such information should not be subject to appeal. If that is a simple matter and such a provision could be included—that is, a provision to the effect that no one has a legitimate right or claim to say that such information should not be presented to HMRC—presumably the first-tier tribunal should be able to draw the necessary conclusions. We share the views of the Liberal Democrats on that point. The Minister needs to explain why the right of appeal should not be available, even if documentation constitutes part of the statutory records. That argument relates to amendments Nos. 259, 174 and 177.
Amendment No. 176, tabled by Liberal Democrat Members, makes a fair point, as paragraph 28 gives a right of appeal against the third-party notice only
“on the ground that it would be unduly onerous to comply with the notice or requirement.”
There might be other circumstances in which it would be right for the first-tier tribunal to grant an appeal, but the wording is very narrowly defined, and provides for a small exemption. I would be grateful to know the Minister’s thoughts as to why it is necessary to restrict that right of appeal to that narrow ground.
Amendment No. 261 provides that the notice of appeal should go to the first-tier tribunal, rather than to Revenue and Customs. It is largely an administrative point, on which we would welcome the Minister’s comments. Amendment No. 262 relates to paragraph 30(4), which states:
“Where the First-tier Tribunal confirms or varies the information notice or a requirement, the person to whom the information notice was given must comply with the notice...within such period as is specified by the Tribunal”.
We suggest a clarification of that measure. Our proposal is similar to that which we made in a couple of debates this morning, because we suggest there should be a minimum period of
“at least 30 days starting with the day after the notification of the decision to the person to whom the information notice was given”.
That would provide a degree of certainty, and ensure that there is a reasonable amount of time for someone to comply with the tribunal decision.
Amendment No. 292 deals with a slightly different point. Paragraph 32 deals with the supply of goods or services as special cases, and makes particular rules for such circumstances. Essentially, it deals with MTIC—missing trader intra-community fraud—which is a major issue that we have not debated a great deal in this Finance Bill Committee, although it has been debated in previous years. It represents a considerable threat to the Exchequer, and there is a case for special rules to be made in relevant circumstances. However, to provide a little more clarification and to ensure that paragraph 32 applies only in those circumstances, we suggest a specific reference to statutory records for “VAT purposes”, to relate the provision directly to MTIC fraud, and prevent the provision applying more generally, which I do not think is the Government’s intention. We await the Minister’s comments.

Jane Kennedy: As has been described, these paragraphs in schedule 36 set out the appeal rights for taxpayers against information notices, and strike a balance between the need to give taxpayers the right safeguards and the need for HMRC to be able to check and identify where non-compliant taxpayers have underpaid tax. Amendments Nos. 174 to 177 and 259 would exclude the two circumstances in which there would not be a right of appeal, and I shall seek to answer questions about the reasons for those exemptions. However, before doing that, I shall try to answer the questions raised by both hon. Gentlemen about what constitutes statutory records.
The hon. Member for South-East Cornwall suggested that bank or mortgage statements might constitute statutory records. A bank statement could be a statutory record if the bank account is used for the business or for taxable transactions, but a mortgage statement would be unlikely to be a statutory record. It could be requested as supplementary information, but that would have to be via an information notice.
Statutory records will also be defined in the record-keeping regulations, which we have taken powers to lay in schedule 37, and in guidance. A diary, as suggested by the hon. Member for South-West Hertfordshire, would be a statutory record only if it were a business appointment diary, such as a hairdresser might keep—a business close to both our hearts, Sir Nicholas. That is a reasonable reason for a diary to be requested.
For income tax, capital gains tax and corporation tax, the law says that records must be kept in order to enable a complete and correct tax return or a claim to be made. Those include records of receipts and expenditure and sales or purchases of goods, where relevant; VAT business and accounting records must also be kept, plus additional records specified for certain purposes. It is reasonable to expect that HMRC should be able to inspect such records, given that keeping them is a statutory requirement.
A right of appeal against a statutory right is inappropriate and would be unworkable in practice. For example, what could the right of appeal be? It would be exploited by the non-compliant to delay HMRC’s compliance work. There are many examples of other statutory checks by public sector bodies, professional and trade associations without a direct right of appeal. Sometimes it is not appropriate to give a right of appeal where other safeguards are in place, in order to prevent unnecessary delays in the checking process, or where the appeal right would be meaningless. Some taxpayers already exploit existing appeal rights to delay legitimate checking, withdrawing their appeal at the last moment.
I propose that there will be no appeal where HMRC asks for statutory records. If a taxpayer is required to keep the records, it is reasonable that they should be asked to provide them and to show them to HMRC. The concept of statutory records was introduced into the legislation as a safeguard. It gives HMRC a right to see the basic records that need to be kept in order to pay the right tax. Where it is considered that more detailed information is needed, an information notice will be required. We have debated the safeguards that are being built in around that.
Where there is doubt about whether something constitutes a statutory record, the taxpayer can make representations to HMRC; and where there is genuine doubt about the categorisation of the records, a penalty would not be incurred at that point. If necessary an information notice can be issued for those records, again with the safeguards around information notices that I have alluded to. There will also be no appeal where the appeal tribunal has already considered whether an information notice is appropriate. That is something that we have done in response to representations made by the British Bankers Association during the consultation. Its concern has been to protect taxpayers’ right to privacy.
That pre-authorisation route may be used only where the tribunal considers HMRC is justified in doing so. Previously, there was absolutely no right of appeal against information requests when HMRC was checking VAT, pay-as-you-earn or periods outside the self-assessment inquiry regimes. Now, there will be appeal rights if HMRC asks for something that a taxpayer is not required to keep by law. Although this schedule retains the ability for HMRC to seek pre-authorisation by the tribunal, it allows for an appeal right to be given against third-party information notices where the taxpayer has consented to HMRC seeking supplementary information.
Amendment No. 261 seeks to provide that notice of an appeal should be given to the tribunal rather than to HMRC. There is a very sound reason why that should not happen. The provision that the notice of an appeal should be given to HMRC replicates the existing legislation, but that is not the reason why I believe it should remain. HMRC needs to be given notice of an appeal by a taxpayer to make sure that further action is not taken in seeking information and in order to prepare the necessary material for HMRC to present its case at appeal. It may be that, on consideration of the appeal, HMRC agrees that the information is not required—that can happen—but imagine the frustration of an individual who has lodged their appeal at the tribunal if HMRC unknowingly continues to pursue them for the information it has requested. This matter is also being considered as part of tribunal reform. The Ministry of Justice is content with the formulation as it stands. I hope that that description of what I anticipate happening has allayed some of the anxieties expressed.
Amendment No. 262 seeks to limit the tribunal’s power to vary the time period within which a taxpayer must comply with an information notice to 30 days or more. It is similar to amendment No. 249, which seeks to do the same where HMRC sets a time period. The arguments for not including the provision are the same, but even stronger. If a time period of less than 30 days is set, it is because the independent appeal tribunal considers that to be reasonable in the case being considered. Amendment No. 292 would not achieve anything. If records are statutory records for VAT purposes, they are still statutory records. It is difficult to think of any document about the supply of goods or services that would be a statutory record for some other tax purpose without also being a statutory record for VAT purposes. Although the main purpose of paragraph 32 is to enable goods to be checked along a supply chain for VAT purposes, the legislation is written without reference to specific taxes as far as possible, as part of the alignment process.
I hope I have managed to address some of the concerns that have been expressed. I know they were tabled as probing amendments, and I hope the hon. Gentlemen will not press them to a vote.

Nicholas Winterton: I will call the hon. Member for South-West Hertfordshire first because the hon. Member for South-East Cornwall has the lead amendment, and he might take some decision towards the end of his response to the Minister’s reply.

David Gauke: Thank you, Sir Nicholas. On amendment No. 292, I note the Financial Secretary’s comment that she does not want to specify within the Bill that the provision applies to a specific tax—VAT—but I would be grateful for clarification as to whether the provisions contained in the paragraph could or will be used more broadly. We understand that the provision is there to tackle MTIC fraud, so I question the reason for her reluctance to specify VAT purposes and ask her to provide some clarification to the Committee on that point.
I note the right hon. Lady’s comments on various other amendments. I do not intend to press them to a Division, as they were tabled to prove the Government’s position. We are not entirely satisfied with the position on appeal—that is a point we touched upon this morning. I do not know whether the Financial Secretary wishes to intervene at all with regard to paragraph 32.

Jane Kennedy: It may help in the consideration that the hon. Member for South-East Cornwall is undertaking. The hon. Member for South-West Hertfordshire is right and it is a good question, in that it has clarified the matter. MTIC fraud, which is commonly known as carousel fraud and which in recent years presented a major risk to revenue is the focus that we have in mind with this measure, but that may change, so it is possible that it could be used for some other purpose.

David Gauke: I am grateful for that intervention. The only other comment that I wish to make is on statutory records and diaries. The Financial Secretary said that the provision will be used only for an appointments diary and gave the example of a hairdresser. She will be aware that some people may be sensitive about an appointments diary being in the hands of HMRC, because it may well contain appointments of a more personal nature that they would not necessarily wish to be in its hands. The concern cannot automatically be dismissed that there could be something of a private nature that HMRC could retain in such circumstances. That is why we have raised the lack of a right of appeal with regard to statutory records. I do not wish to press any of the amendments that I tabled to Division.

Colin Breed: Some questions that we raised have been answered satisfactorily, but I am not entirely sure that the fundamental issues raised by Liberal Democrat amendments Nos. 174 and 177 have been addressed. Our concerns are about statutory records and documents. As it stands, if someone is required to maintain such records, it is not unreasonable to expect them to have some idea of what they constitute. Otherwise, the list could go on and on and almost anything could be said to be a statutory document. The argument in favour of a right of appeal therefore seems to be strengthened. If there were a clear list, or at least some indication of what those documents were, the right of appeal could be diluted. That is what the amendments are designed to address. I can understand the Financial Secretary’s difficulty in this area, but the right of appeal is an important principle for the taxpayer in such matters.

Jane Kennedy: I am trying to be helpful. I said that regulations laid at a later date would bring greater clarity. I appreciate that that answer is often a frustration for hon. Members in Public Bill Committee debates, but there is a clear intention to set out greater detail at a later date.

Colin Breed: I am grateful for that further clarification. I accept that if the Financial Secretary says that in Committee, we can rely on it. She might just about have saved the day. I want her to realise that we believe that this is a very important principle. The right of appeal is paramount when people are trying to defend themselves against the things that are held against them on tax issues. Those things could include all sorts of documentation that they do not believe should be made available for scrutiny by HMRC and there are issues of privacy in such cases. I hope that the Government recognise that and will make proposals accordingly. On the basis of the Financial Secretary’s promises, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

David Gauke: I beg to move amendment No. 264, in schedule 36, page 364, line 40, at end insert—
‘(3) A penalty may not be imposed under this paragraph until—
(a) 30 days after the penalty under paragraph 37 is imposed, or
(b) if later, 30 days after any appeal under paragraph 45 against that penalty is determined.’.

Nicholas Winterton: With this it will be convenient to discuss the following amendments: No. 178, in schedule 36, page 365, line 29, leave out paragraph 41.
No. 179, in schedule 36, page 365, line 43, after ‘Customs’, insert ‘or the First-tier Tribunal’.
No. 293, in schedule 36, page 366, line 5, at end insert
‘, and in particular where the taxpayer satisfies HMRC or on appeal the First-tier Tribunal that at the time of the failure or obstruction he did not have access to, and could not afford, professional advice.’.
No. 180, in schedule 36, page 366, line 43, leave out from ‘issued’ to end of line 1 on page 367.
No. 265, in schedule 36, page 367, line 1, leave out ‘HMRC’ and insert ‘the First-tier Tribunal’.
No. 266, in schedule 36, page 367, line 42, leave out sub-paragraph (4) and insert—
‘(4) The proceedings before the Upper Tribunal shall be conducted in the same way as an appeal against a tax assessment.
(4A) In particular, the person shall be entitled—
(a) to appear before and be heard by the Upper Tribunal, or
(b) to make representations to the Tribunal in writing.’.
No. 181, in schedule 36, page 368, line 12, leave out ‘issued’ and insert ‘received’.
No. 307, in schedule 41, page 406, line 38, at end insert
‘, and in particular where the taxpayer satisfies HMRC or on appeal the First-tier Tribunal that at the time of the failure he did not have access to, and could not afford, professional advice.’.

David Gauke: The amendment relates to the daily default penalties set out in paragraph 38 of schedule 36. The issue was raised by the Institute of Chartered Accountants. Paragraph 38 provides for daily penalties to be imposed after a continued failure to comply, so once a fixed penalty has been imposed there is nothing to prevent daily penalties from being levied. However, in the view of the Institute of Chartered Accountants that would be unfair, especially if the original fixed penalty were subject to an appeal under paragraph 45. That is a fair point. The amendment therefore suggests that paragraph 38 be explicitly subject to a moratorium, so that it may not be invoked until 30 days after the standard penalty is imposed, or 30 days after any appeal against the standard penalty is determined, if that is later. There is a potential injustice where the fixed penalty could be subject to appeal, yet the daily penalties would start to run.
I will allow the Liberal Democrat Members to speak to their own amendments, but our amendment No. 265 and their amendment No. 180 relate to the same issue, which is where the notice of appeal should go. I suspect that the Financial Secretary will refer to her earlier comments on where notice of appeal should be sent. We again make the point that it should perhaps be to the first-tier tribunal; however, I note her comments on the previous group of amendments.
Amendment No. 266 relating to paragraph 48 of schedule 36, provides some detail on the appeal proceedings. In particular, it provides for the right of appeal to the upper tribunal. For these tax-related penalties, a proper right of appeal to the upper tribunal would be appropriate, and there should be the chance for representations to be made. That is a recurring theme in relation to schedule 36.
There is also a point worth drawing out with amendments Nos. 293 and 307. They essentially do the same thing, which is to look at the question of reasonable excuse. The amendments have been provided by the low incomes tax reform group, which does a lot of good work representing low income taxpayers. It makes the point that for some people, a lot of their problems are due to their not having access to professional advice. The group suggests that it would be helpful to have on the statute book a recognition that, when considering whether someone has a reasonable excuse, the fact that they cannot afford professional advice should be taken into account in certain circumstances.
We tabled the amendments in a slightly probing manner, because I see some administrative difficulties with the provisions. Whether someone can afford professional advice becomes a difficult question of judgment. However, the point is an important one, and when looking at reasonable excuse, whether it is on the statute book or not, there should be an acknowledgement that for some people getting professional advice is difficult or not realistic because of the costs involved, with the result that those people are in a worse position. HMRC should acknowledge that in the way those people are treated. There should be a greater degree of latitude for those who are not able to seek the same advice as wealthy individuals or larger businesses. Amendments Nos. 293 and 307 are intended to flesh out the definition of “reasonable excuse” so that it refers explicitly to that matter.

Jeremy Browne: Good afternoon, Sir Nicholas. I wish to speak to amendments Nos. 178 to 181, which I tabled with my hon. Friends, and enlighten the Committee about the intention behind them, if it is not already apparent.
Amendment No. 178 is intended to remove uncertainty from the Bill. Part 7 deals with penalties for failing to comply with an information notice, and paragraph 37 states that a penalty of £300 is payable in those circumstances. The amendment would delete paragraph 41, which legislates against the concealing, destroying and disposal of documents
“if an officer of Revenue and Customs has informed the person that the document is, or is likely”—
that is the crucial part—
“to be the subject of an information notice”.
A number of groups, including the Institute of Chartered Accountants, argue that it is unreasonable to expect someone to keep something on the off-chance that it may be wanted by an officer of HMRC at some point in the future. People have to make a value judgment as to whether it is likely that information will be relevant, applicable or of interest to HMRC at some point. That is an in-built judgment that people are required to make, and they may feel that they cannot second-guess HMRC’s future intentions accurately.
Amendment No. 179 would allow the tribunal to extend the time available. Paragraph 42 of the schedule excludes someone from liability to a penalty if an HMRC officer allows them further time to fulfil the relevant requirements. We are instinctively sympathetic to such flexibility, but the amendment would also allow the first-tier tribunal to allow an alternative time frame for compliance. A theme of our deliberations, both today and previously, is that we are uncomfortable with relying on HMRC officers to decide matters relating to inspection powers and appeals, and that it would be more appropriate for the tribunal to oversee matters of appeal, including by it having the ability to amend demands from HMRC as it sees fit.
Amendment No. 180 suggests that an appeal should be made to the tribunal, not to HMRC. Paragraph 46 of the schedule deals with appeals against a penalty, and the amendment would delete sub-paragraph (1)(c), which requires a taxpayer to provide written notice of an appeal to HMRC. That might seem to be a slightly arcane point, but in our view there is no need for HMRC to be statutor—I can never pronounce that word.

John Penrose: Statutorily.

Jeremy Browne: I thank the hon. Gentleman—a Somerset MP came to the rescue, and his help is much appreciated. There is no need for HMRC to have a legal right to be informed by the taxpayer. Not only is that confusing, but the appeals procedure will of course require the tribunal to interact with HMRC to ascertain the circumstances of the case. Our view is that a taxpayer should not lose the right to appeal because they did not copy that appeal to HMRC when informing the tribunal.
Amendment No. 181 is the simplest of our amendments to grasp. It suggests that the 30-day notice period that applies when an enforcement notice for a penalty is issued should start on the date on which it is received by the taxpayer, not on the date on which it is issued. There is, of course, a period between those dates, and it may be longer than would be ideal if there are difficulties with the postal service, for example. I would be grateful for the Minister’s response to those points.

Mark Field: My hon. Friend the Member for South-West Hertfordshire and the hon. Member for Taunton suggested that the word “likely” is open to great uncertainty in this context. Perhaps the Minister will go into detail about HMRC’s track record, because it would be useful to have something on the record so that we can see what records need to be kept.
I suspect that the Minister will suggest, with authority and to her credit, that taxpayers’ compliance and record-keeping responsibilities are changing rapidly, because much more data is maintained electronically. That can, as her Department is aware, create problems, but it is now easier to retain and store data that is kept electronically rather than on paper. Will she give a brief overview of this area of responsibility and the way in which the balance of responsibility between HMRC and taxpayers has developed? It is unreasonable to expect any corporate or individual taxpayer to keep reams of paper records in filing cabinets for a prolonged period, but in so far as much of the data can be stored electronically on discs and the like, it is understandable that HMRC should expect rather more data to be kept. When the Minister comments on the concerns that have been expressed—we have spoken to a range of amendments suggested by a number of interested outside bodies—she will indicate the Treasury’s broad thinking on how the balance of obligation between taxpayers and HMRC will develop in the years ahead, given the importance of technological changes?

Jane Kennedy: If the hon. Member for Cities of London and Westminster will allow me, I have more detailed notes on future clauses to which amendments relating to computer records in have been tabled. Rather than being drawn into a wider discussion of responsibilities between taxpayers and HMRC, I shall bear in mind what has been said and ensure that I refer to it in future debates.
The purpose of the penalties to which the amendments relate is to deter those who would otherwise not co-operate with HMRC’s checking. If they are to be an effective deterrent, penalties must be clear and transparent, but they should also carry safeguards. For that reason, all the penalties are set out in primary legislation, and they all carry a right of appeal. Amendment No. 264 would provide that before daily penalties are levied, 30 days must have passed since the standard penalty was levied or an appeal was determined. The effect would be that after an initial penalty was charged for failure to comply with an information notice, there would be no incentive to respond for another 30 days. That does not fit with the aim of allowing faster checking and not allowing the non-compliant to delay legitimate checking at little cost to them.
The provision in the schedule applying daily penalties replicates the way in which existing legislation works. That avoids making unnecessary changes that would require taxpayers and their agents to read new rules, and there have been no representations about HMRC’s use of the daily penalty regime. I assure the Committee that the schedule provides for a full right of appeal for taxpayers against both the applying and the level of daily penalties.
Amendment No. 178 would remove the requirement on a person not to destroy, conceal or dispose of documents when they have been told informally that those documents are subject to a formal information notice. In many circumstance, compliance checks are carried out without the need for the formal use of HMRC’s powers, and with the agreement of the taxpayer. That can be an easier way of working for both the taxpayer and HMRC. Adopting this amendment would mean that the risk to HMRC of following an informal approach would increase, particularly when dealing with people who, it later turns out, deliberately seek not to pay tax. Those people could simply destroy the information that HMRC has said that it needs to check a tax position, which is a good reason for maintaining the proposals as laid out in the Bill.
Amendment No. 179 seeks to give the first-tier tribunal the power to give taxpayers further time but, again, that power is not necessary, as the tribunal will have the power to set aside any penalty if the time frame allowed is not reasonable. In paragraph 45, a taxpayer may appeal against a notice
“if insufficient time has been given”.
The tribunal can set aside the penalty if it agrees that insufficient time has been given, so there are provisions elsewhere in the legislation.
Amendment No. 180 removes the provision requiring notice of an appeal against a penalty to be given to HMRC. The amendment replicates the existing legislation. We have had this debate before, and I am going to make the same point in response. Given that existing procedures are working well, I do not believe it is necessary to accept the amendment, so I hope the hon. Member for Taunton will not press it.
Amendment No. 181 seeks to require a penalty to be paid within 30 days of the penalty notice. Again, the 30-day period already takes into account time taken to deliver a notice. If a taxpayer did not receive a notice until too late, they would have a reasonable excuse for paying the penalty late, and would therefore not be subject to further penalties for late payment. If the 30 days did not start until HMRC could demonstrate that a penalty notice had been received, that would allow taxpayers who are so minded—again, there are some—to evade penalties by ensuring they never receive the penalty notice, for example by not collecting their post. It is therefore better to have certainty with clear time frames based on the date written on the penalty notice. That still allows taxpayers with a genuine reasonable excuse for receiving a penalty notice late to escape penalty for late payment.
Amendment No. 266 seeks to apply further procedures to the hearing in cases in which the upper tribunal may impose a tax-related penalty. That penalty will be used only rarely, in extreme cases. To get to that stage, the taxpayer must already have failed to appeal against both the standard penalty and the daily default penalty. The taxpayer would be able to attend either appeal hearing or make representations. The penalty is therefore intended to apply to taxpayers who do not respond to HMRC’s request for information, and who just accept the penalties that are charged. It is for the upper tribunal to decide how best to take into account the taxpayer’s point of view when deciding whether a penalty should be charged and how much. The upper tribunal, as the hon. Member for South-West Hertfordshire will know, is equivalent to a high court. As in any decision by the upper-tier tribunal, there is a right of appeal for either party, on a point of law, to the Court of Appeal under the Tribunals, Courts and Enforcement Act 2007.
Amendment No. 293 is one of the most interesting in this group, although that does not mean that they are not all interesting. It seeks to provide that a taxpayer will always have a reasonable excuse for their failure to comply with an information notice if at the time they did not have, and could not afford, professional advice. Amendment No. 307 has an identical effect in relation to schedule 41, and I acknowledge the work of the low Incomes tax reform group.
HMRC’s intention over time is to create a single, aligned reasonable excuse provision across all tax legislation to make that vital safeguard clearer and more consistent in its application. That approach was strongly supported in the consultation, as was the wording we used in the Bill after the issue was exposed in consultation. The same wording is used in paragraph 43 of schedule 36 and paragraph 20 of schedule 41. The law does not attempt to define what a reasonable excuse is, as that will vary according to the particular circumstances of the taxpayer.
However, if a taxpayer receives a straightforward information notice asking for a particular document or piece of information, generally there should be no difficulty in complying with it. Professional advice is not needed. Of course, there is nothing to prevent HMRC or the tribunal taking the lack of access to a professional adviser into account in particular cases, but it would be inappropriate to allow a blanket exemption from a penalty on those grounds.
Similarly, the obligation for someone to tell HMRC when they start up in business is usually not complicated and it does not require professional advice. Where there is genuine doubt about whether an activity should be registered, and as a result the taxpayer fails to do so, that might be a reasonable excuse. Again, HMRC or a tribunal may wish to consider the issue of access to a professional adviser, but a blanket exemption is inappropriate.
In many cases—I know that this has already happened—taxpayers approach HMRC through the inquiry centres that it has throughout the country, to clarify questions of that nature when they are considering what they need to tell HMRC to establish their tax liability.
I hope that, in making that response to hon. Members’ speeches, I have dealt with most of their concerns. I will certainly remember the note to speak perhaps more generally when we consider computer records at a later time. However, I hope that hon. Members will not press their amendments to a vote this afternoon.

Jeremy Browne: I am going to be as gracious as I ever can be and say that I found the Minister’s response rather persuasive on many points, and I am happy to acknowledge that. The only point about which I continue to have a reservation, although I very much understand the case that the Minister makes, is the specific issue of the taxpayer having to anticipate which documents HMRC considers are likely to be required at some point in the future. I appreciate that, if that caveat is not allowed, there is the opportunity for people to pile loads of documentation through the shredder, knowing perfectly well that it is likely to be useful, but they will be able to put their hand up at a later date and say, totally innocently, “Sorry, I did not realise that I was doing that”.
Of course, the danger of trying to prevent that activity in the way that the Minister is attempting to prevent it through this legislation is that other people who are not acting with malign intentions may feel that they are somewhat caught out too. That situation is what I was trying to safeguard against, but I appreciate that, in trying to safeguard against it, we would potentially open up a big avenue of abuse, which the Minister is concerned about. As I say, although my concerns on behalf of the innocent taxpayer who is seeking to be compliant remain, because of the Minister’s perfectly legitimate concerns I do not anticipate that the Committee is likely to approve amendment No. 178. It is not my place to do anything on amendment No. 264, because I am not the author of that amendment, so I will sit down and allow the hon. Member for South-West Hertfordshire to complete the formalities.

Nicholas Winterton: We are grateful to the hon. Gentleman.

David Gauke: The hon. Member for Taunton says that I will complete the formalities. How does he know that he is not going to get some inspiring oratory? [Laughter.] Alright, I will complete the formalities.
I am grateful to the Minister for her comments. I am grateful that she paid due regard to the Low Incomes Tax Reform Group, which does a lot of very good work. However, her arguments on amendments Nos. 293 and 307 are persuasive. Although there are circumstances in which recognition of a lack of access to professional advice should be taken into account, I can see the difficulties of having a one-size-fits-all definition of “reasonable excuse” for these purposes and a degree of flexibility is helpful.
I also note the Minister’s comments with regard to amendment No. 265; she made comparable comments earlier, and I will accept her comments. I am not necessarily entirely convinced on amendment No. 266, but I certainly will not press for a Division on that.
On amendment No. 265, the Minister said that the current system seems to be working well. I would be grateful if she could keep that under review, and I am sure that she will, so that if there are problems with notices of appeal that can be looked at again. On amendment No. 264, I can see the administrative difficulties that may be created and the potential delays. It is always a question of getting that balance right and it is not necessarily an easy judgment to make. Having made those comments, however, and having probed the Government on these issues, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Jeremy Browne: I beg to move amendment No. 182, in schedule 36, page 369, line 33, leave out from ‘Schedule’ to end of line 34 and insert
‘may not be made unless a draft of the regulations has been laid before, and approved by a resolution of, the House of Commons.’.
I felt that we had not spent nearly long enough on schedule 36 and that another amendment would keep us going until perhaps a Division in the Chamber.
I will be brief. There is a slightly ritualistic quality to the amendment because it is the type of amendment that is tabled by Opposition parties as a matter of routine. I sound rather world weary for someone who has only been in Parliament for three years. I have observed the tabling of such amendments many times and the Government in my experience resist them. I anticipate that they will do the same again. There is no harm, however, in tabling such an amendment even if one anticipates that one will be unsuccessful.
The amendment seeks to require an affirmative resolution when changes are made. Paragraph 55(2) states that all statutory instruments provided for under the schedule will be subject to negative resolution. Amendment No. 182 changes that to an affirmative resolution. The basis for that is that we continue to have serious concerns with regard not just to this schedule and legislation but to other Government legislation generally about the lack of safeguards afforded to the taxpayer and the Government being empowered to make changes without going through the degree of parliamentary scrutiny which we would wish to see. Amendment No. 182, therefore, seeks to ensure that Parliament is able to debate further regulations and scrutinise HMRC’s practices more thoroughly than would otherwise be the case.

David Gauke: As the hon. Gentleman said, there is a certain ritualistic nature to the amendment. None the less, I think it is valuable because Government should always have to justify the use of the negative resolution as opposed to the affirmative procedure. When I have debated the matter with the Financial Secretary in the past, she has tended to make the point that it is the sort of thing that Oppositions call for and Governments reject.
Schedule 36 is an important schedule. It contains an important number of provisions. The detail on the safeguards by no means matches the detail on the powers and deterrents; the whole process is about powers, deterrents and safeguards, a point that I made last week. From what we have heard, most of the safeguards will be in the form of guidance rather than in the regulations. There are regulations, but if we were to look at where the real issue is, it is probably more within the guidance. That is partly why we have taken some time over schedule 36. We wanted to get the Minister to consider those particular points.
Given that, and notwithstanding the characterisation which tends to be the case in these matters, we are perhaps not as strongly moved by the argument for the affirmative resolution to apply in these particular circumstances. I do not know whether that indicates wider expectations. I would be grateful, however, to hear the Government’s explanation of why the particular procedures are in place, as opposed to something that gives Parliament greater scrutiny, given that this is an important schedule with important powers.

Jane Kennedy: I do not intend to rehearse the usual arguments. Although the Opposition parties’ complaints are habitual, they are none the less heartfelt. In particular, there is good reason to explain why there are three regulation-making powers in schedule 36. The first, in paragraph 21 allows commissioners to make regulations about the procedures for the first-tier tribunal to resolve disputes over whether information or a document is privileged. The regulations represent an additional safeguard for taxpayers and provide a clear framework to resolve such disputes, which does not currently exist for taxation. The regulations will simply relate to procedural matters.
Paragraph 58 contains another regulation-making power that will allow commissioners to make regulations to specify particular activities as a “business”. Primary legislation already sets out some activities to be considered businesses, and the consequences in relation to inspection powers. The regulation-making power will enable more detail to be provided—as I indicated when we discussed these matters in greater detail earlier—particularly for new or unusual activities. The negative resolution procedure is appropriate for each of those regulation-making powers because of their narrow scope and because they will provide greater clarity and safeguards for taxpayers.
The third regulation-making power, in paragraph 39, allows the Treasury to revalorise the level of penalties for failing to comply with an information notice in line with the value of money. That is standard wording for revalorisation provisions, which are customarily dealt with through the negative resolution procedure. I do not believe that there is any good reason to act differently in this case. Using the affirmative resolution procedure for any of those provisions would run contrary to the normal practice for tax matters. I have not been persuaded by the hon. Member for Taunton, and I hope that he will withdraw his amendment.

Jeremy Browne: As the hon. Member for South-West Hertfordshire said, we are trying to strike a balance between, on the one hand, an HMRC empowered to do its job on behalf of taxpayers in order to maximise the revenue accruing to the Government through entirely legitimate and legal procedures, and on the other safeguarding the rights of the individual. The lengthy and detailed scrutiny of this part of the Bill has been extremely useful, precisely because it is so important to strike the right balance. I am keen to see Parliament’s powers extended, so that it can continue to scrutinise in great detail any future changes. However, I accept that I am unlikely to persuade the Government of the merits of that case. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 225, in schedule 36, page 370, line 3, at end insert—
‘“premises” includes—
(c) any building or structure,
(d) any land, and
(e) any means of transport,’.—[Jane Kennedy.]

Amendment proposed: No. 270, in schedule 36, page 371, line 45, leave out ‘present and future liability’ and insert
‘or present liability or any future liability to the extent that it depends in whole or in part to any past or present transactions’.—[Mr. Gauke.]

Question put, That the amendment be made:—

The Committee divided: Ayes 7, Noes 16.

Question accordingly negatived.

Amendments made: No. 226, in schedule 36, page 373, line 12, at end insert—
‘68A In section 29(6)(c) (assessment where loss of tax discovered), omit “, whether in pursuance of a notice under section 19A of this Act or otherwise”.’.
No. 227, in schedule 36, page 373, line 20, at end insert—
‘71A (1) Section 107A (relevant trustees) is amended as follows.
(2) In subsection (2)(a), for “, 95 or 97AA” substitute ‘or 95’.
(3) In subsection (3)(a), omit “or 97AA(1)(b)”.’.
No. 228, in schedule 36, page 376, line 8, leave out ‘118’ and insert ‘115’.—[Jane Kennedy.]

Schedule 36, as amended, agreed to.

Clause 109

Computer records etc

Amendment proposed: No. 229, in clause 109, page 68, line 25, at end insert ‘, or
(d) makes any other provision in connection with a requirement mentioned in paragraph (a) or (b).’.—[Jane Kennedy.]

Nicholas Winterton: With this it will be convenient to discuss Government amendments Nos. 230 to 234.
This is not the place for a stand part debate, but, as I have indicated, if in discussing any of the Government amendments it is convenient to make reference to matters that might delay us in a protracted stand part debate, my hearing will perhaps catch up after the reference has been made, as long as it is not too long.

David Gauke: I hope to catch your eye during the stand part debate, Sir Nicholas. I appreciate why the Financial Secretary moved the amendment formally. She says that the amendments are of a technical nature, but I thought that it would be helpful if she could briefly describe the significance of changing the references to “provision” to “enactment”, just so that the Committee is fully aware of the reason behind the amendments. I have no further comments at this time.

Stewart Hosie: I heard what you said at the beginning, Sir Nicholas. I hope that you will not chide me, as I want to speak directly to amendment No. 229, but it is difficult to do that without discussing the context of clause 109 generally. I shall keep this as brief as I can and associate it with the amendment, when I can.

Nicholas Winterton: That is quite in order, Mr. Hosie.

Stewart Hosie: Thank you, Sir Nicholas.
There are several parts to clause 109, which is about computer records. Subsection (1)
“requires a person to produce a document or cause a document to be produced”,
which is perfectly reasonable. It also
“requires a person to permit the Commissioners or an officer of Revenue and Customs...to inspect”
or, more importantly,
“to make or take copies of or extracts from or remove a document”.
That necessitates access to the computer, which is described later in the clause.
Subsection (2) refers to a provision applying if
“any reference in the provision to a copy of a document were a reference to anything onto which information recorded in the document has been copied, by whatever means and whether directly or indirectly.”
I shall return to that in a moment.
Subsection (3) states:
“An authorised person may, at any reasonable time...check the operation of, any computer and any associated apparatus or material...in connection with a relevant document.”
My problem is that, if the document is an e-mail, or an attachment to an e-mail, sent by a web mail service on a web server hosted overseas, or if the document is a web page or a page on a web-enabled application, again on an overseas-hosted web server, I am not sure how any of that can be done, particularly in respect of subsection (3), which allows the person to check
“any computer and any associated apparatus”
in order, for example, to remove the document.
That brings me directly to amendment No. 229, which is extraordinarily wide, in that it
“makes any other provision in connection with a requirement”
related to the person who produced the document or caused it to be produced, or the commissioners or an officer making or taking copies of or extracts from or removing the document. I am not sure how enforceable that will be, particularly in the case of the examples that I gave, which would seem to introduce a degree of extra-territoriality in the clause itself and, further, in any other provision being made in connection with something that is extra-territorial and may be completely unenforceable.
That brings me to the effect of amendment No. 229 on subsection (5), which states:
“An authorised person may require...the person by whom or on whose behalf the computer is or has been so used”.
That may be reasonable if the computer is accessible, but subsection (5)(b) refers to
“any person having charge of, or otherwise concerned with the operation of, the computer, apparatus or material.”
Again, amendment No. 229, which is about making any other provision to have access to remove a document from a person in subsection (5)
“having charge of, or otherwise concerned”,
brings into play innocent third parties, because presumably the clause is about licences and software as well as kit. Assuming that it is accessible and that it is not extra-territorial, it brings into play operations people, communications people, third-party maintenance people and so on.
There is a final issue with the clause. The document could have been created on a handheld device like a BlackBerry, which is deemed to be a computer, or it could be an attachment to an e-mail created on a handheld device, and that handheld device is no longer used by the taxpayer but someone has charge of it—perhaps a sales rep for the same company based overseas on secondment for three or four months. Amendment No. 229 would allow “any other provision” to be made in connection with removing a document from a “computer” when it is completely inaccessible and may be overseas. Clause 109 in general is right, but amendment No. 229 allows almost anything to happen and I am concerned that it is too wide. There is also an issue of extra-territoriality, given that servers can be hosted almost anywhere and are not necessarily in the same jurisdiction as the person or the jurisdiction where the document was created.
Amendment No. 229 risks widening the scope of investigating people involved to include innocent third parties. It is also unenforceable. Notwithstanding the depth and breadth of clause 109, I am interested in whether the Minister thinks that amendment No. 299, which
“makes any other provision in connection with”
taking or making copies and extracting or removing documents from
“any computer and any associated apparatus”,
is enforceable. Having read amendment No. 229, I do not think that it can be done, other than through the normal judicial channels of seeking warrants in third-party countries if a web server happens to be hosted elsewhere. I am not sure that the amendment, which would allow other provisions to be made, is not so wide that it undermines and removes the assurances that the Minister gave in debates this morning, particularly in relation to domestic premises that were not business premises that might normally have been searched for documents.
I hope that that makes sense. I have been as clear as I can be. I look forward to hearing the Minister.
Mr. Brooks Newmark (Braintree) (Con) rose—

Nicholas Winterton: Before I call the hon. Member for Braintree, can I say that I shall certainly allow a reasonable debate on Government amendment No. 229? However, I should like to debate that in full, put the question on it and then, with the Committee’s leave and permission, put the question on Government amendments Nos. 230 to 233 together. I hope that I have the Committee’s permission to do that.
By the way, since I like to be helpful, there may be two Divisions in the Chamber at 6.30 pm and, with a quarter of an hour for each Division, that could take us up to 7 pm. It is not for me to limit or restrict the debate in this Public Bill Committee, but perhaps in the next few minutes the usual channels might intimate to the Chair what their plans are for the sitting this afternoon.

Brooks Newmark: Thank you, Sir Nicholas, for probably indulging me in what I am about to say. I am thinking in a similar vein to the hon. Member for Dundee, East, because I feel that there are a number of issues that Government amendments Nos. 229 and 230 to 234 do not address. Like the hon. Gentleman, I, too, have a problem with clause 109(3), which I will get to.
I am sorry that the hon. Member for Wolverhampton, South-West (Rob Marris) is not in the room, because his knowledge of background notes is always appreciated in situations such as this. The background note to clause 109 suggests that it is concerned with the standardisation of, rather than with substantive changes to, existing provisions. The note mentions explicitly the review of powers, deterrents and safeguards that were set up during the amalgamation of the Inland Revenue with HM Customs and Excise. However, there is no mention of the many reviews pending into data security, which form the real background to the clause and are a real cause for concern among members of the public and their professional advisers.
As midsummer approaches we are still waiting for Keiran Pointer’s final report on HMRC data loss, promised in the spring, but kicked into touch amid the Prime Minister’s superabundance of bad news. Likewise, we are still waiting for the final review of the Cabinet Office report, “Data Handling Procedures in Government” promised in spring, but also missing in action. The interim report notes:
“It is clear that more can be done to improve trust and confidence about the arrangements in place to protect information in Government... As a first step, Government should commit to enhanced transparency with Parliament and the public about action to safeguard information and the results of that action.”
Nevertheless, Parliament and the public are still waiting. Also in the pipeline is the report by Richard Thomas, the Information Commissioner, and Mark Walport of the Wellcome Trust. Meanwhile, Sir Edmund Burton’s review and recommendations into the MOD’s loss of laptops is as absent as its subject.
I mention all that to question whether this is an appropriate time for a standardisation of HMRC’s access to computer data, considering that its procedures have already been visibly shown to be inadequate. The Government are pursuing the Government’s favourite tactic of conducting a review into everything in order to stave off having to do anything. But there is no sense that any of the Government’s industrious reviewing is feeding back into legislation such as this. At the weekend, the Home Affairs Committee published its report into the emergence of a surveillance society in Britain, which warned of the erosion of trust between the citizen and the state. It noted the potential that the relationship between the two was on the verge of being changed for good.
Given the palpable sense that trust has been eroded, I have a couple of questions for the Financial Secretary. The first concerns departmental spot checks by the Information Commissioner. The Prime Minister announced in November spot checks on departmental application of data protection principles and data handling procedures. How far has that process proceeded and how has the Information Commissioner specifically looked into HMRC’s capacity to handle that kind of computer access situation authorised under the clause?
My second question concerns the Cabinet Office interim report on “Data Handling Procedures in Government”. Paragraph 31, which covers HMRC, states:
“Specific actions already taken include the appointment of a senior official, Director of Data Security, and the appointment of Data Guardians to all areas within HMRC.”
Yet I see no provisions in the clause relating to oversight by the director of data security or the detailed role of data guardians in the operations of these powers. Nor is there an explicit role for the Information Commissioner, despite the Cabinet Office’s report also suggesting that legislative steps should be taken to enhance the ability of the Information Commissioner to provide external scrutiny of arrangements.
The hon. Member for Dundee, East, whom I should like to address as an hon. Friend but cannot for technical reasons, talked about subsection (3). It simply takes us back to the territory of any “authorised person” having a right of access to
“any computer and any associated apparatus”.
I know from my own experience in the private sector that we took our data security very seriously indeed because, if we had not, we would very likely have been sued. I can well imagine that IT managers are not at all pleased with the idea of undisclosed and unidentified, but nevertheless “authorised persons”, being able to root through their systems at will. That would be the position of a member of staff who provided “reasonable assistance” to an authorised person.

Stewart Hosie: There is another issue here. Because the clause talks about apparatus, if one considers best practice in backing up systems and saving data, I can imagine a company or an IT manager being seriously unhappy if a Revenue officer arrived and said, “I am taking away all the back-ups to your system because we believe that somewhere on this in the last six months is a document that we need to see but we are not sure precisely what day you saved it on.” What would happen if there was a catastrophic system failure, the data were in the depths of the HMRC, the system could not be reloaded and the company ceased being able to trade and began to lose money?

Brooks Newmark: As always, the hon. Gentleman raises an important point. People such as him and me, who work in the private sector, understand the practicalities that the Government have failed to address in their amendments Nos. 229 and 230 to 234. There are, perhaps, weaknesses in how they are dealing with issues that have been raised in relation to clause 109. Even if the clause were urgently needed to standardise and consolidate HMRC’s procedures, could not the opportunity have been taken to embed specific provisions on oversight by the Information Commissioner?
My final point is about the emergence of a two-tier system of data security within HMRC. Members of the Committee know that our tax affairs, as Members of Parliament, are looked after by two very helpful ladies who work for HMRC’s public department 1 near Cardiff. The interesting thing about public department 1 is that one lot of its computer records is apparently inaccessible by other authorised persons within HMRC. I believe that colleagues who were on a Select Committee visit to another part of HMRC once tried to look up their details but found that the request was blocked. It seems that even in the tax inspectors’ world, some are more equal than others.
The two-tier arrangement was also brought to light by my hon. Friend the Member for Blaby (Mr. Robathan) in Treasury questions some months ago, when he discovered that Members of Parliament cannot submit their tax returns online like mere mortals because the system is not deemed appropriate for us. The Financial Secretary said:
“There are categories of individual for whom security is a higher priority.”—[Official Report, 24 January 2008; Vol. 470, c. 1626.]
I pursue this line of argument because if there are categories of person for whom security is a higher priority, surely there are also categories of business or transaction that require tighter security. I do not want to try your patience, Sir Nicholas—I am just finishing. Will the Financial Secretary clarify whether there will be similar gradations of risk in the way in which the powers in clause 109 are exercised? Will particularly sensitive businesses or records held by those businesses warrant scrutiny by a more thoroughly vetted authorised person, or will the system be one size fits all? Thank you for your indulgence, Sir Nicholas.

Nicholas Winterton: Before I call the Financial Secretary to speak, let me say that I used wide discretion in permitting some of what was said then, but I think that it might have been to the advantage of the Committee.

Jane Kennedy: Thank you, Sir Nicholas. Will there be a stand part debate on the clause?

Nicholas Winterton: I hope not. I understood that by allowing the hon. Member for Braintree to range rather widely, we could do without a clause stand part debate.

Jeremy Browne: On a point of order, Sir Nicholas. Amendment No. 190 stands in glorious isolation to be considered separately, but would it be helpful to pile it in with what we are discussing, as well as the clause stand part debate, so that everything can be debated in one big go?

Nicholas Winterton: I am most grateful to the hon. Member for Taunton for that suggestion, but we have had a pretty major debate already and I would therefore be reluctant to include the amendment at this late stage.

David Gauke: On a point of order, Sir Nicholas. In my opening remarks I raised a technical point and sought clarification from the Minister. There are significant issues to do with clause 109, including representations that have been made by professional bodies such as the Law Society, that have not yet been addressed. I do not think that a lengthy debate is necessary, but I think it would benefit the Committee to debate those issues if we could have that opportunity. Of course, your wisdom is not to be doubted.

Nicholas Winterton: Of course, if there is a demand for a stand-part debate, I am obliged to find time for it. If there is one, I hope it will be extremely brief and if there is any way that the hon. Gentleman, during the remarks the Minister is about to make, can seek clarification by way of intervention on one or more points, I am sure the Minister would be very happy to deal with it. Let us see how the debate proceeds.

Jane Kennedy: Thank you, Sir Nicholas. I was conscious of the fact that the hon. Member for South-West Hertfordshire had indicated he hoped for such a debate and I was trying to structure what I was going to say accordingly, but I will try to answer all the points that have been raised in the debate so far, which I thought was particularly well developed by the hon. Member for Dundee, East. He raised a number of very valid questions and I will seek to deal with those as far as I am able.
On the more general points raised by the hon. Member for Braintree, I do not intend to be drawn into a discussion around when we anticipate a report from Kieran Pointer. It is very tempting to respond to some of the details and the sweeping generalisations that he presented, but I will resist the temptation. It may be worth noting that the Exchequer Secretary to the Treasury tells me that information she has received electronically indicates that right at this moment there is a story running that 38,000 customers of the firm Cotton Traders have had their credit card details stolen by somebody who has hacked into its website. The kind of security breach that we saw at HMRC is not, sadly, as rare as it should be, but the responsibility on organisations that hold data, particularly data as important as an individual’s financial information, is very clear and we have made it clear that the recent, well-publicised lapse of security at HMRC means that, for HMRC, data security is at the forefront of everything that it does. One might say that it should always have been so, but it certainly is now.

Mark Field: The Minister is making a statement and has been very open about the failings at HMRC, but there is a fundamental distinction between the public and the private sector. Most private sector data are kept voluntarily and the individuals who are involved work with some sort of provider or some sort of other business. That is in sharp contrast to data kept by the public sector which are kept on a compulsory basis. It is for that reason that there is, and should be, a higher barrier for data kept by the state rather than by private companies.

Jane Kennedy: I absolutely agree with everything that the hon. Gentleman just said and I am sure that the report we will receive shortly will be of immense interest to the House as well as to the public. However, the existing provisions on which this clause is based have not given rise to security problems, there are already powers to deal with computers in the way that this clause is describing and HMRC staff are trained not to operate a taxpayer’s computer in what we might call a “live” environment, in other words, an environment within which the data itself might be affected by the change. The opposite of a live environment would be a safe environment within which the data can be read, but not affected by the individual reading it. That is in order to ensure that there is no risk of data loss.
Clause 109 explains HMRC’s powers where such documents are stored on computer memory or otherwise recorded and it already applies to all taxes, duties and other matters for which HMRC is responsible. Amendment No. 229 responds to a point made by the Law Society to put beyond doubt that clause 109 applies not only to enactments about production or inspection of documents, but also to related provisions. The effect is that, for example, the protections applying to documents that we have already discussed in part 4 of schedule 36 also apply to electronically held equivalents of those documents. The intention is that the protections that apply to those documents also apply to their electronic equivalents. Amendment No. 229 makes that clear.
The hon. Member for Dundee, East questioned whether the provisions of clause 109 go too wide. They do not go too wide as it sits under legislation. For example, protections in schedule 36 apply to requests under clause 109. He also rightly asked what would happen if an individual’s documents were created or held on websites maintained overseas. If the webpage can be accessed from a UK computer, it can be accessed under the power, as long as it is classified as a relevant document in a taxpayer’s power and possession. We have discussed how “relevant” would be defined.

Stewart Hosie: That comes to the nub of the matter. The document is no longer accessible on a computer in the UK, but remains in cache memory somewhere on a web server hosted halfway round the world. Clause 109(3) appears to give authorised people entitlement to check that computer, and the amendment would certainly allow any other provision to do that to be made. That is extra-territorial, unenforceable and possibly illegal. I wonder why we have an amendment that would allow nominally something to happen that could not be done.

Jane Kennedy: I have no reason to believe, from the advice that I have received, that that is not doable, as the hon. Gentleman suggests. I will respond to one or two of his points. Again, there is the tendency to dismiss the role of an authorised person. An authorised person will usually be a HMRC employer who has received appropriate training in information technology. HMRC also has a specialist team available to give advice. Electronic records are no different to paper records when it comes to boundaries and borders. For example, if a taxpayer keeps records in New Zealand, but those records relate to their UK tax affairs, HMRC can ask to see them. If the electronic record is stored offshore but forms part of a UK taxpayer’s records, HMRC can see it. HMRC already has those powers. Officers will not access taxpayers’ computers willy-nilly. They will only do so to view documents needed to check a tax position. Computers will only be removed for forensic examination in a case being considered for criminal prosecution. I hope that that gives some reassurance to the hon. Gentleman.
Amendments Nos. 230 to 234 correct a drafting error in that subsections (2) and (3) refer to provisions to which the clause applies. The amendments are necessary to ensure that the provision works as intended.
I make one final point regarding the hon. Gentleman’ very real concerns. HMRC officers can travel abroad only with the agreement of another country’s tax authority. Otherwise, HMRC has to ask another country to use its power to access the information. I hope that he will accept that the process is highly regulated and subject to scrutiny.
I appreciate that there will be a further debate, if members seek to catch your eye, Sir Nicholas, so I will curtail my comments. I hope that I have sufficiently answered the questions on our amendments to the clause.

Amendment agreed to.

Amendments made: No. 230, in clause 109, page 68, line 26, leave out ‘A provision’ and insert ‘An enactment’.
No. 231, in clause 109, page 68, line 27, leave out ‘provision’ and insert ‘enactment’.
No. 232, in clause 109, page 68, line 29, leave out ‘provision’ and insert ‘enactment’.
No. 233, in clause 109, page 68, line 37, leave out ‘a provision’ and insert ‘an enactment’.—[Jane Kennedy.]

Jeremy Browne: I beg to move amendment No. 190, in clause 109, page 69, line 24, leave out from first ‘is’ to end of line 26 and insert
‘an officer of Revenue and Customs,’.
Many of the wider points that I wished to make about the drafting of the clause have already been touched upon, so I shall make a concise contribution. The amendment would change the definition of an “authorised person” in subsection (9), so that instead of the commissioners being able to authorise a class of person, which would mean that they could allow anyone, even outside contractors or untrained individuals, to undertake the work in question, only an officer of Revenue and Customs could access and inspect information.
The purpose of the amendment, as I am sure is obvious to the Committee, is to define more tightly the category of people who will be able to access potentially sensitive information. My view, and that of my colleagues, is that that would go a long way towards addressing many of the concerns that people have rightly expressed about the sensitivity and privacy of a lot of the documentation that HMRC will be examining. We believe that it would be more appropriate for a more limited and defined category of inspectors to have access to that information.

David Gauke: In light of the amendment, may I ask the Financial Secretary why we have in the clause a definition of “authorised person”, rather than of “authorised officer”, which is used in schedule 36? No doubt she will pick up that point in responding to the hon. Member for Taunton.
I have two practical questions. First, will any guidance be produced to explain how the definition of “authorised person” will be applied and exactly whom we are talking about? Secondly, if a taxpayer is having their computer checked by someone performing the powers in the clause, how will they be able to ascertain whether the representative of HMRC or other person is an authorised person? What comfort will the taxpayer have in those circumstances that he or she is dealing with an authorised person?

Jane Kennedy: Those were thoughtful questions. The amendment deals with a matter that I started to explain in my response to the debate on earlier amendments. As I said, an authorised person will usually be an HMRC employee or officer who has received appropriate training in information technology. HMRC also has a specialist team available for advice. However, there may be exceptional circumstances in which it is necessary to engage a specialist agent from outside HMRC. The clause is drafted to enable that to be done. That answers the question why we are using the word “person” rather than “officer”. It would apply if a taxpayer’s record keeping systems were of a kind that HMRC did not have the necessary internal expertise to check. I can envisage a number of circumstances in which that would happen, but it would be rare.
Appropriate steps would necessarily be taken to ensure that the taxpayer was certain of the legitimacy of the person concerned and that confidentiality was maintained. I shall want to give some thought to the exact question I was asked, which was how they will know that. I will respond to the hon. Member for South-West Hertfordshire later, perhaps in writing if he will allow me to do so. It was a sensible question and was rightly put. HMRC will want to be very clear about how that legitimacy will be determined. I hope that the amendment will not be pressed to a vote.

Jeremy Browne: I have some concerns about the Financial Secretary’s assurances, not just on this amendment, but throughout the Bill. She gives them entirely in good faith, but they rely on guidelines and the good will and decency of HMRC and its employees, rather than on being defined in legislation. Having made that point, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 234, in clause 109, page 69, line 29, after ‘includes’, insert ‘an enactment contained in’.—[Jane Kennedy.]

Nicholas Winterton: I have received information through the usual channels that they will seek to go on after 7 o’clock. If there are two Divisions of 15 minutes each, that will take us to 7 o’clock. I say to the Committee and to the usual channels that I will have been in the Chair for three hours at 7.30. If it is the intention to adjourn the Committee at approximately that time, which is up to the Government Whip, I am happy to give the leeway of a few minutes. Other than that, I shall allow a break for dinner and refreshment. Does the Government Whip wish to comment on that?

Bob Blizzard: I think I made a comment in the note that I sent you, Sir Nicholas.

Nicholas Winterton: Indeed, and I will read it to the Committee:
“Sir Nicholas, It is my intention to make up today all the time lost through Divisions in the Chamber. I have agreed this with the Opposition.”
I have indicated my intention, whether or not the Committee can meet that. I think that after three hours’ debate a break will be appropriate.

Question proposed, That the clause, as amended, stand part of the Bill.

David Gauke: Bearing your strictures in mind, Sir Nicholas, I will keep my comments as short as possible. Clause 109 contains powers for HMRC to gain access to computer records. It works on the basis that documents stored on computers or copied to another form of electronic media should be treated as though they are documents or copies themselves. That seems a perfectly reasonable way to deal with the matter.
Subsection (3) gives an authorised person powers to
“obtain access to, and inspect and check the operation of, any computer and any associated apparatus”.
There does not appear to be any limitation on that power. Computer records are equated with documents and there are protections with regard to the production of documents, which we have been debating. However, those protections do not appear to apply to the powers to inspect and check the operation of computers. First, why are those protections not in place? Secondly, is it the intention that guidance will restrict the operation of subsection (3)? Thirdly, as she has done during the debates on part 7, will the Financial Secretary provide some comfort to the Committee by setting out how HMRC will operate these powers in practice to ensure that individuals whose records are held on computer as opposed to hard copy are not disadvantaged? I would be grateful for the Minister’s response, either now or after a few moments, when she may have had an extended opportunity to think about these questions and then inform the Committee.

Jane Kennedy: The clause forms part of the package of measures to stemming from the review of powers—

Sitting suspended for Divisions in the House.

On resuming—

Jane Kennedy: Clause 109 forms part of a package of measures stemming from the review of powers, and, in essence, brings together existing provisions in two separate Acts, one applying to the former Inland Revenue, and the other to Customs and Excise. It ensures that documents include electronic versions of documents, and allows HMRC access to computers holding information required for a tax check. The hon. Member for South-West Hertfordshire asked whether guidance will follow the legislation. Indeed it will. We are bringing together two existing provisions, and where existing guidance is not adequate, new or amended guidance will be published, on which we will, of course, consult.
The clause extends beyond schedule 36 matters and applies to other taxes, to excise and to criminal prosecutions, hence the understandable concerns expressed in Committee. The hon. Member for Cities of London and Westminster sought a broader statement of the intent behind the clause. All the safeguards in schedule 36 prevent the clause from being used to bypass protections applying to written documents. When HMRC wishes to gain access to computers, as opposed to written documents, I would expect it to telephone the taxpayer and make the request, in the way discussed earlier, and to agree a time at which to inspect or remove the documents. In so far as it is possible, that will be done with the co-operation of the taxpayer. Where it is not agreed, the safeguards that we debated in earlier clauses will apply equally to the treatment of computers.
The only change is to the penalty provisions. The existing law has worked well, having first been introduced in 1985, which means that it predates this Government. However, it is important that I say a word or two about the penalty requirements. The Government amendments that bring together the equivalent provisions elsewhere in legislation will realign the separate penalties for obstructing an HMRC officer. The maximum penalty has been set at £300—lower than the previous maximums. Under the former Inland Revenue provisions, the penalty was £500, and under the Customs and Excise provisions, obstruction or failure is a criminal offence with a penalty, on conviction, of £2,500, which is a significant sum of money—a level 4 penalty on the standards scale. A fixed penalty is more easily understood and fits better with other HMRC fixed-penalty provisions. In the case of a serious obstruction, it would still be open to HMRC to prosecute under section 31 of the Commissioners for Revenue and Customs Act 2005. It would make sense to have a single, aligned provision dealing with access to computer records and would represent a simplification in that the two existing provisions will be repealed.

Question put and agreed to.

Clause 109, as amended, ordered to stand part of the Bill.

Clause 110 ordered to stand part of the Bill.

Nicholas Winterton: May I again seek to assist the Committee in the longer term? We are expected to conclude our deliberations on 19 June, which means that we will have six sittings left after this one. Because I am involved with the selection of amendments, I know that a considerable number of amendments have been tabled by the Government towards the end of the legislation, and that a considerable number have also been tabled by Her Majesty’s Opposition.
I hope that colleagues are aware of the expectation that we should complete by 19 June, and, if that is the case, that they will consider how they handle the rest of the Bill, and whether every speech is necessary or merely padding out the debate. I do not want to limit the debate. I want proper debate, but I want debate on the issues that are of importance to the Bill, and particularly to Her Majesty’s official Opposition and other Opposition parties.

Schedule 37

Record-keeping

David Gauke: I beg to move amendment No. 294, in schedule 37, page 376, line 30, after ‘regulations’, insert
‘made under paragraph 2(3A) and (3B) of Schedule 11 to the Value Added Tax Act 1994 or such other specific provisions as Parliament may from time to time determine’.

Nicholas Winterton: With this it will be convenient to discuss the following amendments:
No. 191, in schedule 37, page 377, line 9, leave out from ‘cases’ to end of line 13.
No. 275, in schedule 37, page 377, line 13, at end insert—
‘(5D) Regulations under subsection (3A) may not be made unless a draft of them has been laid before, and approved by resolution of, the House of Commons.’.
No. 276, in schedule 37, page 377, line 42, at end insert—
‘(6A) Regulations under sub-paragraph (2A) may not be made unless a draft of them has been laid before, and approved by resolution of, the House of Commons.’.

David Gauke: Thank you, Sir Nicholas, for your guidance. I shall try to present my comments on the four amendments in as brisk and workmanlike a manner as possible.
Schedule 37 is about record-keeping requirements. Amendment No. 294 relates to the provisions contained in paragraph 2(4), which allow commissioners for HMRC to make regulations specifying additional records and supporting documents that are to be kept and preserved. The concern that we have—this will run through my comments on the other amendments—is whether Parliament is surrendering too much power in the circumstances.
The concern in respect of paragraph 2(4) is that if powers are given to make regulations to impose enhanced record-keeping requirements, those powers should be limited. I believe that the intention behind the powers is to have enhanced record-keeping requirements relating to missing trader intra-Community fraud, which is an important issue. We do not for a moment want to impede the Government’s desire to tackle MTIC fraud. However, if that is the concern, the provisions should be limited to that area. Hence, amendment No. 294, which was proposed by the Institute of Chartered Accountants, would make the additional requirements that may be produced through regulation more specific. In essence, it would limit them to VAT matters.
Amendment No. 191 was tabled by the Liberal Democrats, and I have no doubt that the hon. Member for Taunton will speak on it. We are sympathetic to it because it would address the power that schedule 37 gives HMRC to
“make provision by reference to things specified in a notice published by...Her Majesty’s Revenue and Customs in accordance with the regulations”.
We are discussing regulations that will not be made by Parliament, whether through affirmative or negative resolution, but, as far as one can see, simply through guidance produced by HMRC. There will be no opportunity for Parliament to scrutinise them in those circumstances.
There is also a practical concern for taxpayers who are seeking to comply with their record-keeping requirements. Where those requirements are changed simply in relation to HMRC guidance, it will be increasingly difficult for taxpayers and professional advisers to monitor what those changes might be, so this is not purely about parliamentary accountability. The Minister may be able to address those concerns.
A practical point must be borne in mind. Amendments Nos. 275 and 276 relate to further powers under schedule 37 and both would require a resolution to be made under the affirmative procedure. During this debate, we have not taken a dogmatic approach on whether affirmative or negative resolution should be in place, but we would like to test the Government’s position on those matters. We look forward to hearing what the Minister says.

Jeremy Browne: Amendment No. 191 is in my name and that of my hon. Friends. We are concerned that the provisions in schedule 37 provide too much power for HMRC. For example, paragraph 2 allows HMRC to make regulations, but for reasons of certainty and scrutiny that should be done by Parliament. Without the amendment, the provision would amount to tertiary legislation. The Institute of Chartered Accountants in England and Wales, among other bodies, has indicated that that would allow HMRC guidance booklets to be considered as legislation, creating great uncertainty for the taxpayer, who will not reasonably be able to keep up with the rules that they need to abide by. We are concerned about that. I should be grateful for any reassurances that the Minister can provide.

Jane Kennedy: It might be worth talking briefly about schedule 37 generally, so that my response to the amendments is in context. The schedule aligns existing record-keeping rules for the main taxes: income tax, corporation tax, capital gains tax and VAT. Those rules have been the subject of extensive consultation, including draft guidance.
Records are essential both for taxpayers to make accurate returns and claims and for HMRC to be able to check those. Where there is poor record keeping, errors often follow. Therefore it is right that HMRC works to promote good record keeping. However, the overall aim of the schedule is not to add to what currently happens. We need to align and clarify the rules across the main taxes as HMRC moves, increasingly, to new ways of working across taxes. Representative bodies told us that taxpayers need clarity, but that they do not want HMRC to tell them exactly what records to keep. Instead, taxpayers should usually decide what to keep in the light of their own circumstances. It does not matter if the records are kept in a shoebox, so long as they are complete.
Some people worry that HMRC’s expectations on record keeping are unrealistic, particularly for small businesses. The hon. Member for South-West Hertfordshire is right: guidance will address that matter and consultation with the main representative bodies will be invaluable in ensuring that the guidance is both user-friendly and realistic.
I have been listening to the representations made by both hon. Gentleman, They both mentioned the Institute of Chartered Accountants and I have noted what they said about its views. The guidance published with the consultation was produced early and welcomed by many. It is not always possible to consult in advance, but on this occasion HMRC worked hard to do so. The fact that it did so, and the way that it responded to representations, has been welcomed.
The amendments concern the power to make regulations on keeping records. HMRC will be able to specify what does and does not need to be kept. That can be a useful way of providing clarity and can act as a taxpayer safeguard. There is no immediate need to make regulations to give that added clarity. We took the view that it was sensible to take the power now, against any future need, particularly as we expect such needs to be identified in the course of consultation on the guidance and that, if draft regulations are needed, they will be published in advance to allow representative bodies to make clear their views.
Amendment No. 294 is an attempt to narrow the regulation-making power in the way described. I say to the hon. Member for South-West Hertfordshire that it seemed to us that that was a difficult way of doing it—linking the power to an existing power in an Act about a different tax. We thought that if we were amending it in that way, a more conventional route would have been to amend section 12B. The amendment would negate the whole point of the attempt to align the record-keeping requirements across taxes. It would also mean that HMRC would be unable to provide clarity on what records did not need to be kept, which is why guidance would be appropriate. It would add unwelcome complexity, and there is concern about whether it would provide effective future proofing, which is partly what the hon. Gentleman is seeking to provide.
Amendment No. 191 would remove one instance of the power to make tertiary legislation. That power allows HMRC to use public notices to supplement regulations and to specify records. It means that HMRC can make decisions on routine administrative matters rather than taking up parliamentary time. That may alarm some people, but that flexibility allows HMRC to respond quickly to changes and it is already a familiar feature in VAT. Regulations must be laid before HMRC can specify by notice. The amendment would perpetuate differences between taxes. It would hamper the alignment that is integral to the merged HMRC. It makes sense to align here, particularly as the same records are relevant for several different taxes.
Finally, I turn to amendments Nos. 275 and 276. The normal protocol for tax is to use the negative resolution procedure for regulations that deal with routine administrative matters. Affirmative resolution is usually reserved for more contentious matters or those that directly affect the amount of tax due—for example, changing a VAT rating. The existing VAT regulations that specify records are made under the negative resolution procedure. Using the affirmative procedure for any of those provisions would be contrary to the normal practice for tax matters.
I note the concern expressed, and I am in regular conversation with the Institute of Chartered Accountants. I believe that the amendments are unnecessary, although I want to keep the matter under review, particularly if the guidance proves later to be controversial.

David Gauke: I acknowledge the Minister’s comments on amendments Nos. 275 and 276, so I shall not press them. I was interested to hear what the hon. Member for Taunton had to say about amendment No. 191. I am still not entirely convinced by the Government’s position on the matter, based on parliamentary scrutiny and practicality, but there we are.
I note the Minister’s concern that amendment No. 294 would hamper the direction that the Government want to take on greater harmonisation and alignment. That shows up one of the tensions that exist within any alignment or harmonisation project. There are certain aspects for which the Government may seek special rules—for example, relating to VAT, as it is subject to fraud, and regulations would need to be in place requiring particular documents to be kept as a consequence.
I am not sure whether the Minister is saying that including the provisions of the amendment in the Bill would hamper that or whether there would be flexibility within the system to make specific record-keeping requirements that would essentially apply to a particular tax because they were seeking to tackle a particular tax fraud. I acknowledge that, although I am not entirely convinced by that position. However, I shall not press it to a Division. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Jeremy Browne: I beg to move amendment No. 192, in schedule 37, page 377, line 31, leave out ‘in writing’.

Nicholas Winterton: With this, it will be convenient to discuss the following amendments: No. 295, in schedule 37, page 377, line 31, after ‘writing’, insert
‘in relation to a particular taxpayer’.
No. 193, in schedule 37, page 377, line 32, at end insert
‘and received in writing by each taxpayer to whom the duty under sub-paragraph (1) applies.’.

Jeremy Browne: Amendments Nos. 192 and 193 come as a joint package. Both have the intention of ensuring that the individual taxpayer is notified by HMRC and that a general release by HMRC is not sufficient. If I may slightly expand, the belief that underlies both amendments is that exemptions and conditions provided for should be addressed to the individual taxpayer to whom they apply. That would prevent HMRC from being allowed to use any written form available, for example even a press release, to create limitations on the discharge of duty.
The amendments would also require the conditions and exemptions to be received by the taxpayer. As the legislation currently stands, HMRC is only obliged literally to write them down. If a taxpayer is required to follow the rules, the view of our party is that HMRC should ensure that the taxpayer first be provided with the rules and regulations that they are required to comply with.

Nicholas Winterton: Ideally succinct. I thank the hon. Gentleman.

David Gauke: Essentially, amendment No. 295 does what amendments Nos. 192 and 193 jointly do. The arguments have been expressed by the hon. Member for Taunton. The Institute of Chartered Accountants noted, with regard to paragraph 3 of schedule 37, that it seems to give HMRC wide-ranging powers to create a statutory condition by means of, for example, a press release. Again, that raises an issue not only of accountability but of practicality: not every taxpayer——I dare say not even every professional adviser——will be watching every HMRC press release as closely as possible. In the circumstances, it would be preferable if this power was used specifically for specific taxpayers rather than applying generally. Therefore, we are most sympathetic to the Liberal Democrats’ amendments and we seek the Government’s views on our amendment No. 295.

Jane Kennedy: This draft of the legislation aligns the rules in this area. It does away with the need for prior approval for VAT, but that is balanced by the power to set conditions about what is acceptable. I have heard what has been said about press releases and will deal with that directly. However, the only conditions that HMRC expects to specify by this route are the current high-level ones, which allow preservation of records by any method as long as it captures all the information needed for a tax return. The information needs to be available in a legible form.
It is important that I take the opportunity to put on record that these conditions will not be in a press release. A press release is a temporary format. It is very important that the conditions be highlighted in a public notice, and these conditions are fundamental. It is quite right that they need to be publicised to all taxpayers. If these amendments were made, HMRC could not put the conditions in a notice. Instead, it would have to write to each individual taxpayer to set them out. Hon. Members will agree that that would be hugely resource-intensive and help no one. Therefore, although I acknowledge that there is a genuine worry behind the amendments, I hope that I have been able to address that concern in my response and that the amendments will not be pressed to a Division at this late stage.

Jeremy Browne: The Minister has gone some way to addressing those points and I hope that she will continue to be vigilant in the way that she instructs both her Department and HMRC on the need to ensure that those who are required to comply with the law know what the law is that they are being required to comply with.
On that basis and in the spirit of the mood of the Committee, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 37 agreed to.

Clause 111

Disclosure of tax avoidance schemes

Question proposed, That the clause stand part of the Bill.

David Gauke: I shall be brief, as I have some comments to make on the amendment in my name in relation to schedule 38. Clause 111 relates to the disclosure of tax avoidance schemes, and the point has been made that subsection (2) contains provisions on when the measures will come into force. We have received representations that there should at least be a reasonable time between the making of the final regulations and their coming into effect. Will the Minister give the Committee some guidance as to what she anticipates the timetable will be?

Jane Kennedy: The regulation-making powers that the commencement order provides for would be made immediately after the passing of the Bill. The Committee has before it a draft of the regulations that are intended to be made, but the substantive provisions of the schedule will be brought in at a later date. As is normal practice, they would be brought in immediately on Royal Assent.

Question put and agreed to.

Clause 111 ordered to stand part of the Bill.

Schedule 38

Disclosure of tax avoidance schemes

Amendment made: No. 235, in schedule 38, page 381, line 45, leave out ‘involving the client’.—[Jane Kennedy.]

Nicholas Winterton: I thank the Committee for its co-operation and look forward to seeing Committee members on Thursday morning.
Further consideration adjourned.—[Mr.Blizzard.]

Adjourned accordingly at twenty-eight minutes past Seven o’clock till Thursday 12 June at Nine o’clock.